OT: Payroll Tax Cut

[DataAgent]

One tax cut and a new fee added. Ho ho ho!

To pay for the two-month payroll tax cut, a small fee will be levied for a decade on all mortgages sold to Fannie Mae and Freddie Mac.

http://www.latimes.com/business/realestate/la-fi-1224-housing-fees-20111224,0,6170696.story

[SD Realtor]

and since there is no secondary market that means basically every mortgage originated for purchase or refi for the foreseeable future.

[briansd1]

I wonder why there is no secondary market. Is it because of government competition, or because there simply because that’s how the market works.

If only we’d like the market take care of itself, mortgages would be a lot more expensive and house prices would be a lot lower.

[UCGal]

[quote=briansd1]I wonder why there is no secondary market. Is it because of government competition, or because there simply because that’s how the market works.

If only we’d like the market take care of itself, mortgages would be a lot more expensive and house prices would be a lot lower.[/quote]

Have you paid ANY attention for the past five years?

There was a huge secondary market – it was the majority of the market. Mortgages were bought, bundled, traunched, diced/sliced and turned into mortgage backed securities, aka derivitives. These were sold as investment vehicles. This profitable scheme demanded more and more mortgages, so underwriting was relaxed and anyone with a pulse could get a mortgage.

Then the shit collapsed because real estate does *not* always go up and people who never should have gotten a mortgage stopped paying on their notes.

The secondary market disappeared overnight. Because no one wanted to buy mortgage backed securities – because no one trusts the underwriting. And we’d learned that real estate is like any other market – it can go down as well as up. And when it gets to bubbly heights – it can collapse.

The GSE’s are the only folks willing to buy the mortgages… And they were pumped up to fill the demand to help ease the liquidity crisis. Some day the secondary market might come back… Perhaps banks will go back to holding the mortgages they underwrite… but I’m not holding my breath.

[briansd1]

[quote=UCGal]

The GSE’s are the only folks willing to buy the mortgages… And they were pumped up to fill the demand to help ease the liquidity crisis. Some day the secondary market might come back… Perhaps banks will go back to holding the mortgages they underwrite… but I’m not holding my breath.[/quote]

Not sure how soon the private secondary market will come back if banks require large down payments of buyers.

Without the GSEs and FHA, housing would be near dead right now.

[SD Realtor]

I prefer to think of it the other way. Without the GSE we would no longer have a totally manipulated overinflated housing market and prices would be substantially cheaper and larger downpayments would be needed. We would have a painful one time housing market correction and what would emerge from the ashes would be a healthier housing market that would be valued correctly. We would also have a private secondary market that would demand stringent underwriting standards because there would not be an ultimate safety net that is taxpayer funded directly or indirectly.

It would hurt at first but be great in the long run.

[UCGal]

[quote=SD Realtor]I prefer to think of it the other way. Without the GSE we would no longer have a totally manipulated overinflated housing market and prices would be substantially cheaper and larger downpayments would be needed. We would have a painful one time housing market correction and what would emerge from the ashes would be a healthier housing market that would be valued correctly. We would also have a private secondary market that would demand stringent underwriting standards because there would not be an ultimate safety net that is taxpayer funded directly or indirectly.

It would hurt at first but be great in the long run.[/quote]

I agree completely. The correction would have been painful- but faster… allowing recovery to start sooner, and more robustly.

As it stands, we still have declining home prices… it’s a slow steady drip drip drip of pain.
http://www.calculatedriskblog.com/2011/12/case-shiller-house-prices-fall-to-new.html

I’m a yank the bandaid off quickly kind of gal.

[briansd1]

[quote=SD Realtor]
It would hurt at first but be great in the long run.[/quote]

Hurt at first but for how long?

Remember that in the long run we are all dead. But in the mean time, we have lives to live.

A collapse in housing and financial markets would hurt portfolios, pension funds, etc… Lives would be upended.

Just one example. Millions of seniors each year want to sell their houses and retire. A quick collapse of housing would forever change their lives and upend their plans.

Was the Great Depression good for the long run? Millions of people suffered and never recovered. Were their sacrifices “worth it”?

[SD Realtor]

It doesn’t matter how long. In fact all the trillions we have used to prop up the current lame scheme could have been used to help these poor old people you refer to. Instead under the current scheme housing is way overpriced, wall street continues to make record profits and the debt for all of these overpriced assets is still backed by the taxpayers.

Keeping up a sh_tty system in place because of fear of how long it takes to fix it is a poor excuse. In the long run a shtty system will fail while a good system will benefit the market it operates in. There is nothing good about the way it works now. It perpetuates a broken system that makes wall st richer. It encourages a walk away attitude by owners. It discourages lenders and servicers from prompt foreclosures. It throws moral hazard out the window completely.

This entire mess in also partly due to the fact that wall street took risks because they KNEW they would be bailed out.

[briansd1]

I’m of the opinion that timing matter greatly for young people entering the workforce at an opportune moment, people retiring, etc…

Economic deprivation cause psychological, productivity and economic problems that last generations. If we are in a position to do something about it, then we must.

I don’t disagree that a market free of moral hazards is better, but in the short run we must stabilize economic dislocations while reforming the system in the long run.

It’s a question of building the political will to make reforms.

[SD Realtor]

Yeah whatever. I call BS.

We have a system that sucks and is so overwhelmingly manipulated it is a joke. There are very limited opportunities to ever make any real change and when the sh-t hit the fan in 2007/2008 the opportunity was right there. The government failed.

Democrat or Republican will not make any difference and the perpetuation of crap will continue. Bush failed and president you have a man crush on has been just as much of a failure. Wall Street is more powerful then ever and record profits have been recorded under the Obama regime. He is no better or no worse then his predecessors so I am not blaming him at all. He is just doing what they all have done with respect to Wall Street.

Whining about the pain is like a child being afraid of a shot to get better. To think there is a way to ease into this sort of change you are deluding yourself.

[SK in CV]

[quote=SD Realtor]It doesn’t matter how long. In fact all the trillions we have used to prop up the current lame scheme could have been used to help these poor old people you refer to. Instead under the current scheme housing is way overpriced, wall street continues to make record profits and the debt for all of these overpriced assets is still backed by the taxpayers.

[/quote]

I think it does matter how long. I think you’re making the argument (and correct me if I’m wrong.) that if the Federal government (directly and indirectly through it’s agencies and the GSEs) took a hands off approach, and let the real estate market take another tumble quickly, that somehow there would be a recovery to normalcy faster than the current approach. That kind of extreme dynamics in the market would hurt. (I think you’ve acknowledge that.) The social pain would be enormous, and the current political climate would virtually insure that entitlements would not increase substantially. I’m not sure why a return to normalcy could be any faster than the current approach. We won’t create households any faster. We won’t need more houses in 5 or 10 years because of that approach.

I’m not ecstatic with any of the individual programs which have slowed the resolution of the market overhang. But I’m also not convinced that anything could have been done to make it better. As a whole, I think they’ve worked.

[SD Realtor]

SK I don’t think the argument is whether they have worked or not. I think it is very apparent that indeed they have worked.

However I believe that the housing market is manipulated to such an extent that the value of the asset (the home) is incorrect. To me the manipulation of the market is rooted in disproportionate risk/reward ratio that is at the heart of the institutional lending tree. This has allowed phenomenal gains to be made by the lending institution with all the risk being taken by the public and all the reward being made in the private sector.

I do acknowledge that the undertaking to an entirely private market is substantial, painful, horrific, however you want to characterize it. However I also believe that it is not something the government should be involved in at all. I think this is getting around to, well it sucks that it is this way, but it is such an f’d up situation that it is completely irreversible. I just don’t buy into that mentality, (also understand this is not a dem/repub thing)

When you say it has worked, well yes it has worked but we agree that what was less government backed before is now completely 100% government backed. The secondary market used to thrive. What happened was that the secondary market ignored risk and basically killed itself. Was risk ignored because of greed? Absolutely but was risk also ignored because there was an implicit belief that the safety net was there? I think so.

I believe a secondary market could indeed come to life again but why hasn’t it? I think very much because the value of the underlying assets are all distorted. So is it a chicken and egg sort of deal? perhaps. Valuations are distorted because of the easy money. Why is the money easy? Because of the low rates AND because of the government safety net.

The calamities you guys have spoke of, the return to normalcy is interesting. Return to a situation where people, pension funds, etc, are making a return on an asset that is ultimately overpriced only because of a govt guarantee on the value of the overpriced asset…

To me it seems sort of ponzi like. I am not saying it doesn’t work. We all knew it would work. Underneath it all, to me it is akin to a disguised subsidy that will forever result in incorrectly valued assets.

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